SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For the Quarter Ended November 30, 2002
Commission File Number 01-19001
MILLER DIVERSIFIED CORPORATION
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada . 84-1070932
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Mailing Address:
P. O. Box 237
La Salle, Colorado 80645
23360 Weld County Road 35
La Salle, Colorado 80645
-------------------------------------
(Address of Principal Executive Office)
(970) 284-5556
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of shares of Common Stock, par value $.0001, outstanding on January 6,
2003, 6,364,640.
Transitional Small Business Disclosure Format: YES NO X
----- -----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Report on Review by Independent Accountants
-------------------------------------------
To the Board of Directors
Miller Diversified Corporation
We have reviewed the accompanying consolidated balance sheet of Miller
Diversified Corporation and its subsidiary as of November 30, 2002, and the
related consolidated statements of operations for the three-months ended
November 30, 2002 and 2001, and the consolidated statement of cash flows for the
three month periods ended November 30, 2002 and 2001. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements for
them to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of August 31, 2002, and the related
consolidated statements of operations, of shareowners' equity, and of cash flows
for the year then ended (not presented herein), and in our report dated October
9, 2002 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet information as of August 31, 2002 is fairly stated in
all material respects in relation to the consolidated balance sheet from which
it has been derived.
/s/ ANDERSON & WHITNEY, P.C.
-----------------------------------
ANDERSON & WHITNEY, P.C.
Greeley, Colorado
January 10, 2003
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Nov. 30 Aug. 31
2002 2002
- --------------------------------------------------------------------------------
ASSETS
- ------
Current Assets:
Cash $ 184,247 $ 214,345
Receivables:
Trade accounts 333,510 636,125
Trade accounts - related parties 255,507 165,761
Accounts receivable - related parties 878,244 900,609
Notes - cattle financing 199,146 611,869
Notes - cattle financing - related parties -- --
Inventories 1,951,212 1,616,291
Deferred income taxes -- 25,411
Prepaid expenses and other 435 29,524
- --------------------------------------------------------------------------------
Total Current Assets 3,802,301 4,199,935
- --------------------------------------------------------------------------------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 198,494 198,494
Leasehold improvements 187,767 187,767
1,884,101 1,884,101
Less: Accumulated depreciation
and amortization 975,428 951,819
- --------------------------------------------------------------------------------
Total Property and Equipment 908,673 932,282
- --------------------------------------------------------------------------------
Other Assets:
Notes receivable - related parties 300,000 300,000
Deferred income taxes 350,756 350,756
Deposits and other 11,495 11,495
- --------------------------------------------------------------------------------
Total Other Assets 662,251 662,251
- --------------------------------------------------------------------------------
TOTAL ASSETS $5,373,225 $5,794,468
================================================================================
Continued on next page.
3
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
- --------------------------------------------------------------------------------
Nov. 30 Aug. 31
2002 2002
- --------------------------------------------------------------------------------
LIABILITIES
- -----------
Current Liabilities:
Cash overdraft $ 302,679 $ 193,323
Notes payable 2,182,528 2,572,120
Trade accounts payable 536,643 442,806
Accounts payable - related party -- --
Accrued expenses 34,826 75,281
Customer advance feed contracts -- --
Current portion of:
Capital lease obligations - related party 31,227 31,227
Long-term debt 1,300 3,225
Long-term debt - related party 65,087 65,087
- --------------------------------------------------------------------------------
Total Current Liabilities 3,154,290 3,383,069
- --------------------------------------------------------------------------------
Capital Lease Obligation - Related Party 864,145 871,634
Long-Term Debt --
Long-Term Debt - Related Party 57,245 73,045
- --------------------------------------------------------------------------------
Total Liabilities 4,075,680 4,327,748
- --------------------------------------------------------------------------------
Commitments
================================================================================
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock -- --
Common Stock, par value $.0001 per share
25,000,000 shares authorized; 6,364,640
shares issued and outstanding 636 636
Additional Paid-In Capital 1,351,693 1,351,693
Retained Earnings 40,977 185,411
Accumulated Other Comprehensive Income (Loss) (95,761) (71,020)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 1,297,545 1,466,720
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,373,225 $ 5,794,468
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
4
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------
Three Months Ended November 30 2002 2001
- ------------------------------------------------------------------------------------
Revenue:
- --------
Feed and related sales $ 1,192,246 $ 916,742
Fed cattle sales 1,535,742 1,937,608
Feedlot services 163,521 234,032
Interest income 7,338 12,687
Interest income - related parties 4,500 4,500
Other income 26,699 25,581
- ------------------------------------------------------------------------------------
Total Revenue 2,930,046 3,131,150
- ------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 1,024,866 734,693
Fed cattle sold 1,700,986 2,264,012
Participation Company cattle sold - related parties (82,622) --
Feedlot services 190,867 245,265
Selling, general, and administrative 177,296 201,800
Equity in (earnings) loss of investee -- --
Interest 9,593 11,220
Interest on note payable - related party 28,083 30,475
- ------------------------------------------------------------------------------------
Total Costs and Expenses 3,049,069 3,487,465
- ------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (119,023) (356,315)
Income Tax Expense (Benefit) 25,411 (89,079)
- ------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (144,434) $ (267,236)
====================================================================================
INCOME (LOSS) PER COMMON SHARE $ (0.02) $ (0.04)
====================================================================================
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
====================================================================================
See Accompanying Notes to Consolidated Financial Statements.
5
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------
Three Months Ended November 30, 2002 2001
- ----------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Cash received from customers $ 3,153,442 $ 3,356,117
Cash paid to suppliers and employees (3,225,900) (3,238,321)
Interest received 11,838 17,187
Interest paid (76,751) (48,196)
Income taxes paid -- --
- ----------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities (137,371) 86,787
- ----------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment -- (5,900)
Loans to related party -- --
Collections from cattle financing -- --
Loans for cattle financing 412,723 (244,429)
Proceeds from sale of other investments -- --
Distributions received from other investments -- --
- ----------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 412,723 (250,329)
- ----------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from:
Notes payable 4,030,026 6,595,729
Long-term debt - related party -- --
Long-term debt -- --
Principal payments on:
Notes payable (4,419,618) (6,539,890)
Capital lease obligations - related party (7,489) (6,713)
Long-term debt - related party (15,800) (14,184)
Long-term debt (1,925) (1,138)
Change in cash overdraft 109,356 (48,358)
- ----------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities (305,450) (14,554)
- ----------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (30,098) (178,096)
Cash, Beginning of Period 214,345 272,915
- ----------------------------------------------------------------------------------
Cash, End of Period $ 184,247 $ 94,819
==================================================================================
Continued on next page.
6
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
- --------------------------------------------------------------------------------
Three Months Ended November 30, 2002 2001
- --------------------------------------------------------------------------------
Reconciliation of Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Net income (Loss) $(144,434) $(267,236)
Adjustments:
Depreciation and amortization 23,609 23,608
Equity in (earnings) loss of investee -- --
Gain on sale of other investments -- --
Deferred income taxes 25,411 (89,079)
Unrealized hedging losses (24,741) 49,231
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 302,615 442,074
Trade accounts receivable - related party (89,746) (28,544)
Accounts receivable - related party 22,365 (171,376)
Inventories (334,921) 369,780
Prepaid expenses 29,089 15,642
Deposits and other -- --
Increase (decrease) in:
Trade accounts payable and accrued expenses 53,382 (257,313)
Trade accounts payable - related parties -- --
Customer advance feed contracts -- --
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities $(137,371) $ 86,787
================================================================================
0
See Accompanying Notes to Consolidated Financial Statements.
7
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------
The consolidated balance sheets as of November 30, 2002 and August 31, 2002, the
consolidated statements of earnings for the three months ended November 30, 2002
and 2001 and the consolidated statements of cash flows for the three months
ended November 30, 2002 and 2001 have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted as allowed by the rules and
regulations of the Securities and Exchange Commission.
In preparation of the above-described financial statements, all adjustments of a
normal and recurring nature have been made. The Company believes that the
accompanying financial statements contain all adjustments necessary to present
fairly the results of operations and cash flows for the periods presented.
Further, management believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the annual financial statements and the
notes thereto. The operations for the three-month period ended November 30, 2002
are not necessarily indicative of the results to be expected for the year.
8
Item 2 - Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Results of Operations
- ---------------------
Three months ended November 30, 2002
- ------------------------------------
Total revenues for the quarter ended November 30, 2002 decreased $201,104 or
(6%) less than November 30, 2002. Fed cattle sales decreased $401,866 while
representing 52% of the total revenues for the three months ended November 30,
2002 compared to 61% of total revenues during the same period in 2001. Feed and
related sales increased primarily due to higher prices charged for feed in the
feedlot, which is driven by higher costs of the feed. The increase of $275,504
represents a 30% increase in feed and related sales and is indicative in the
price rise in feedstuffs for the feedlot. Feedlot services decreased $70,511 or
(30%), for the period ended November 30, 2002 compared to November 30, 2001, due
to fewer numbers of cattle in the feedlot.
Miller Feedlots Inc. (MFL) is a related-party entity due to partial common
ownership. The Company's president and the chairman of the board of directors
own all of the outstanding stock of MFL, and together beneficially own 36% of
the Company's stock. In February 2002, the Company reached an agreement with MFL
whereby MFL will participate in 50% of the profits or losses from the fed cattle
sales. The participation is reported as a reduction of cost of sales beginning
with the second quarter of fiscal year 2002.
The total gross profit was $57,412 for the three months ended November 30, 2002
a increase of $213,000 from the corresponding period in the year 2001. The gross
profit percentages were 2% and (5%) respectively for the three months ended
November 30, 2002 and 2001 respectively. The increase in gross profit percentage
is due to reduced losses from fed cattle sales. The gross profit percentage for
fed cattle sales were (10%) and (16.8%), respectively, for the three months
ended November 30, 2002 and 2001. The (10%) loss was reduced to (5%) by the
participation from MFL. The increased profit percentage is a result of higher
fat cattle prices for an extended period of time compared to a year ago. Feed
and related sales gross profit percentage decreased 5% to 14% even though sales
generated $275,504 more for the year 2002 compared to the same period the
previous year, due to a higher cost of sales.
Selling, general and administrative expenses decreased $24,504 due to
management's cost cutting effort during these economic hard times.
Total interest expenses decreased $4,019 for the three months ended November 30,
2002, compared to the corresponding period in 2001 due to lower interest rates.
The interest incurred on company owned cattle was $17,614 for the quarter ended
November 30, 2002, and is included as a cost of fed cattle inventory.
9
Income tax expenses for the first quarter consists of deferred tax expense
resulting from the reversal of an inventory valuation allowance.
The net loss of $144,434 for the three months ended November 30, 2002 is less
than the net loss of $267,236 for three months ended November 30, 2001 and is
mainly due to the strengthening market and thus smaller cattle losses incurred
by company owned cattle.
Liquidity and Capital Resources
- -------------------------------
For the three months ended November 30, 2002, operating activities used cash
flow of $137,372. A $334,922 increase in Company-owned cattle inventory
contributed to this utilization. Funds were provided by a $412,723 reduction of
either financing receivables. A portion of these proceeds was needed to pay down
lines of credit by $389,592. Working capital at November 30, 2002 was $648,011
compared to $816,866 at August 31, 2002.
The Company believes that internally generated funds and the available borrowing
under its existing credit facilities will provide sufficient liquidity and
enable it to meet its current and foreseeable working capital requirements. The
Company's $300,000 operating line of credit had an outstanding balance of
$40,000 on November 30, 2002 and the $4 million revolving line of credit for
purchase and feed cattle to slaughter had an outstanding balance at November 30,
2002 of $1,670,791. The November 30, 2002, balance of $171,736 left $1,828,264
still available on the line of credit for financing qualified customer's cattle
feeding programs. The company line of credit for cattle procurement was fully
extended at $300,000.
These lines of credit with Farm Credit Services are in the process of being
renewed and management does not anticipate any problems.
The Company had no material commitments for capital expenditures at November 30,
2002.
New Accounting Pronouncements
- -----------------------------
Management does not believe there are new accounting standards the
implementation of which will significantly impact the Company's financial
statements.
10
Item 3 - - Controls and Procedures
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the filing date of this quarterly report and based
on the completion of a comprehensive review and reconciliation of the underlying
information supporting key financial statement classifications as of the filing
date, our principal executive officer and principal financial officer have
concluded that these controls and procedures, when supplemented with a
comprehensive review and reconciliation process, are effective.
Disclosure controls and procedures are the controls and other procedures
designed to ensure that information that we are required to disclose in our
reports under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") is recorded, processed, summarized and reported within the time periods
required. To date we have relied heavily on comprehensive review and
reconciliation procedures applied to key financial statement classifications as
a critical element of our disclosure controls and procedures. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information we are required to disclose in the reports
that we file under the Exchange Act is accumulated and communicated to our
management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
11
PART II OTHER INFORMATION
Items 1 through 5 None.
Item 6 Exhibits and reports on form 8-k
a) Exhibits
Exhibit 99.1 - Certification pursuant to section 906 for
Principle Executive Officer and Principal Financial Officer.
b) Reports on form 8-K None filed
12
CERTIFICATION FOR PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, James E. Miller, Principal Executive Officer and Principal Financial officer
certify that::
1. I have reviewed this quarterly report on Form 10-QSB of Miller Diversified
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact, or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial position, results of operations and cash
flows of the issuer as of, and for, the periods presented in this quarterly
report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and we have:
a) Designed such disclosure controls and procedures, as supplemented by a
comprehensive review of important financial statement classifications,
to ensure that materials information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which the
quarterly report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of filing date of this quarterly report (the
"Evaluation Date"); and
c) Presented in the quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Registrant's
auditors and the Registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: January 13, 2002
/s/ James E. Miller
----------------------------------
James E. Miller
Principal Executive Officer
And Principal Financial Officer
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLER DIVERSIFIED CORPORATION
(Registrant)
Signature Title Date
--------- ----- ----
/s/ James E. Miller President, Principal January 13, 2003
- -------------------- Executive Officer
James E. Miller Principal Financial
Officer, and Director
/s/ Clark A. Miller Secretary-Treasurer January 13, 2003
- -------------------- Principal Marketing
Clark A. Miller Officer
/s/ Norman M. Dean Chairman of the January 13, 2003
- -------------------- Board and Director
Norman M. Dean
14